The onset and the spread of the coronavirus will entail alterations in the way supply chains and businesses are run. This is a truly both a humanitarian and an economic crisis – the type that we haven’t seen so far.
It is in this light that a function/profession hitherto taken for granted has come into the limelight. Logistics and supply chains keep the world economy and global trade humming. However, given the massive lockdowns and the socio-economic costs of these decisions, supply chains are coming under severe stress. Moreover, no risk model could have predicted the monumental shocks and effects that this virus would bring with it.
So, given this scenario, what can we do as demand planners, logisticians, sourcing, and supply chain professionals? There are no easy and clear answers. But it is a good time to revisit the 3Vs – Visibility, Velocity and Variability.
Any endeavor at this stage should be towards controlling variability and increasing system wide visibility and velocity. Below I present some thoughts and suggestions that might help. These have been divided into “Strategic” and “Tactical/Operational” responses.
Supply Chain Design: It may be worthwhile to go back to the drawing board and take a quick look at the existing supply and distribution network and all the nodes across the chain.
Key areas to focus on:
- Demand planning process
- Demand aggregation
- Number of product groups
- Product and Inventory classification
- Customer segments
- Warehousing and physical distribution infrastructure
Any supply chain these days is designed to be responsive, agile and flexible – whether on the supply side or the demand side. Moreover, customer fulfilment / order management is primarily governed by a combined Push-Pull strategy. Companies in most industries (barring those operating in Make-To-Order and Engineer-To-Order environments) use Push-Pull based strategies.
Given that the current scenario is highly uncertain it is necessary to focus on customer as well as product segmentation based on “Push” and “Pull”.
Products with a steady demand can be stocked based on forecasts. However, for products with uncertain demand, we need to use a consumption-driven approach. It is here that this kind of pure “Pull” based strategy might work for companies.
Operations Excellence Philosophies: Pull-based systems such as Lean and TOC (Theory of Constraints) could be implemented. Daily distribution requirement plans (DRP) could be generated for movement of products through the primary chain (Plant to Fulfilment Center/Regional Distribution Center). Inventory norms or buffers would need to be calculated for the relevant SKUs. It is essential to ensure product availability in the primary chain through efficient replenishment planning.
At this time, it may be prudent for the planner to devise inventory rationing/allocation based on defined business rules. This would enable optimized allocation and distribution of critical products to the key distributors or retailers in the chain. This approach is particularly effective for CPG, food, health care and pharmaceutical companies where availability of essential items is of utmost importance.
Omnichannel Distribution: From a distribution standpoint, it is recommended to adopt an omnichannel approach where a mix of online and physical distribution can be used to reach the end customer/consumer. Most companies are using online channels but brick and mortar stores continue to play a major role.
The demand planner needs to focus on two key metrics: Availability % and OTIF % (or Product Fill Rates). These metrics need to be monitored on a daily basis. Close coordination with the transportation teams is very important. Given the daily consumption and distribution patterns, there could be a higher proportion of LTL (Less Than Truck Loads).
As mentioned earlier, for demand side management and order fulfilment, it is essential that production systems and strategic suppliers are flexible. Lean production systems can facilitate this thanks to shorter operational lead times and quick changeovers.
Tools & Techniques: Given the current uncertain and evolving situation, demand planners need a system that aids in dynamic planning through the use of scenario analysis and “What-If” analysis. A flexible planning approach is needed and even short term forecasts need to be reviewed.
S&OP/IBP: These meetings need to take place more often – daily or weekly basis. This will help to get a grip on pipeline and channel inventories, service levels and product availability.
Risk Management Tools: This is the right time to invest in a risk management tool or system that can model the impact of potential risks across the supply chain. The output from this system can be used as an input for integrated supply chain planning.
There is no magic bullet for demand planners and supply chain professionals to solve current problems. But what we can do is review the supply chain design and associated strategies in addition to the planning and distribution systems in the light of the push-pull boundary.
- Daily visibility into consumer/customer consumption is essential. Focus on two key metrics: Fill Rates/OTIF % and Availability %
- S&OP/IBP meetings need to be more frequent. It is good idea to invest in risk management tools and systems.
- The aim should be to minimize variability and increase system-wide velocity and visibility. Transportation and distribution operations are the key differentiators.
- Inventory allocation and rationing needs to be adopted based on segmented products and customer profiles.
- Last but not least planners need tools to enable dynamic planning. These tools include “What-If” and “Scenario Planning”.
We will need to wait and watch how this crisis evolves over the next two to three months and calibrate our supply chain strategies accordingly. Your approach will differ based on your industry types – CPG or non-CPG.
You can find more insight into demand planning from Sunil Bharadwaj in his article Demand Management and S&OP — Present and Future, published in the Spring 2018 issue of the Journal of Business Forecasting.